THE `UNDERCOVER COPS' OF REAL ESTATE FRAUD

J. Linn Allen, Tribune Staff WriterCHICAGO TRIBUNE

The Resolution Trust Corp., a generally colorless bureaucracy that has sold off or collected more than $440 billion in assets, including over $30 billion in real estate and $181 billion in mortgages since it began to shovel out the savings and loan cesspool in 1989, has attracted some flamboyant characters.

Take the Texas gent who pulled $2,000 in cash out his boot to grease a sweet deal that would allow him to pay only $65,000 for a $225,000 promissory note secured by a San Antonio office building.

"This is the best money I've ever spent," boasted the Texan. Only thing was, the RTC manager he was bribing was actually an undercover agent. The bribe was captured on videotape, and the Texan with the well-heeled boot was arrested as soon as the deal closed.

The agent worked for the RTC's Office of Inspector General, which was established in April of 1990 to root out fraud, theft, waste and mismanagement in the bailout agency.

The attention the RTC gets usually focuses on the billions it has handled in closing and selling off the almost 750 institutions it has taken over.

And when it comes to real estate, perhaps the agency's most celebrated single piece of property has been the 37-story CenTrust Tower in Miami. It was valued at $165 milllion on the books of the CenTrust Federal Savings Bank but ultimately sold by the RTC for $44 million-a whopping 73 percent markdown.

But many of the real estate cases in the inspector general's files concern the nickel-and-dime cheating, thieving and double-dealing that show human nature's sorry side in all its sordid plumage.

Since its inception, the RTC inspector general's office has pursued criminal investigations leading to 161 indictments and 134 convictions plus fines, restitutions and monetary recoveries totaling almost $20 million. Not all relate to property deals, but those that do add up to a virtual handbook of real estate hanky panky.

They range from embezzlement of rent money to submission of false property management billings to complex property loan schemes that resemble those that got many of the failed thrifts in trouble in the first place. They can be blatant, bizarre or both.

For instance, there was the Georgia man who contracted with the RTC to buy two fancy homes taken over by the agency in the Atlanta suburb of Stone Mountain.

Gaining access to the unoccupied properties, he stripped them of carpets, lighting, plumbing fixtures, kitchen cabinets, appliances, doors and door frames, a furnace, a hot water heater and a jacuzzi. Then he disappeared.

He was found, convicted and sentenced to eight months in prison and ordered to pay $35,000, but the stolen property was never recovered. His plundering caused extensive damage to the homes and the RTC had to sell them "as is" at discounted prices.

Such flim-flamming may seem fairly easy to detect, but a number of larcenous souls evidently regarded the RTC as easy pickings, according to Lew Sherman, the RTC's deputy assistant inspector general for investigation.

"A lot of people viewed the RTC as fair game," he said. "They were dealing with a government entity overwhelmed with assets it was trying to get sold off, and they figured would never be brought to justice-if, in fact, they ever got caught.

"They're no different than any other person who tries to take advantage of a government agency or program," added Sherman, a former investigator for the Department of Housing and Urban Development. "They all rely on the fact that government is big, and sometimes too big to see the little fellow and what he is doing to various programs."

A slightly more convoluted scheme was hatched by a Phoenix real estate agent who engaged in the time-honored practice of hiring "straw buyers" to acquire property, a dodge often associated with slumlords who want to get back their own tax-defaulted property at tax sales.

In this case, the agent picked up street people hanging outside a liquor store or waiting in line to sell blood at a plasma center to use their names to bid for 12 homes in an RTC low-income, affordable-housing program.

After arduous efforts by an investigator to track down the street people, the agent was convicted and sent away for four months. (As a bonus, one of straw buyers turned out to be a fugitive wanted for a parole violation in California).

A Texas dentist got a similar idea, except he used his dental assistant as a straw buyer. The assistant used the dentist's money to purchase the property and then signed the title over to the dentist, who sank $49,000 into the place to fix it up.

But the RTC tripped him up and the dentist got drilled. He was forced to return the property for the original purchase price and had to forfeit the $49,000 in improvements.

Another fertile field for fraud has proved to be management of RTC-owned properties.

A Florida couple responsible for managing two apartment complexes held by a bank taken over by the agency was found guilty in a scheme involving an estimated $150,000 in fradulent billing of the RTC for appliances, carpet installation and landscaping services.

Investigators found invoices in a wastebasket that had been altered with correction fluid to show that goods and services were provided to the RTC buildings, when in fact they had been done at other properties owned by the couple.

Some of the dodges have gotten quite complicated, as in a Massachusetts case in which 13 people, including several mortgage brokers, borrowers, an appraiser and a developer, were charged in a land-flipping ring.

In a land flip, a property is involved in a series of manipulated sales designed to inflate its paper value and secure mortgages far in excess of is worth. The con artists then waltz off with the mortgage money, leaving the bank holding an overpriced property.

The RTC investigation, conducted-as were a number of others-with the help of the FBI, began when a mortgage subsidiary of a thrift taken over by the RTC reported suspicions about loans it had purchased from a Massachusetts mortgage broker.

In one flip, a Lynn, Mass., house was bought for $77,000, and then resold twice within a few months for $125,000 and then for $290,000, with mortgages being fradulently obtained in the transactions.

The probe uncovered flips of dozens of properties and more than $2.3 million in illegally obtained mortgage money. Ten people were convicted, one getting a jail term of five years, and three others fled the country.

One of the most tortuous deceptions involved a Canadian couple who colluded with a Florida man to purchase illegally a specialized investment company that was federally insured and licensed by the Small Business Administration to aid business enterprises by disadvantaged persons.

The couple converted $800,000 in company funds for their own use, and bought a $450,000 RTC-owned bank building in Largo, Fla., fabricating a loan commitment from their own lending company to obtain RTC financing. Using similar methods, they tried to buy a $1.26 million apartment complex in Pinnellas Park, Fla.

They and the Florida man were caught and the Canadian man was sentenced to 14 years in prison, the longest jail term ever imposed for an offense under the law setting up the RTC.

Such agile financial finaglings "make you wonder how much the people would have made if they actually put their talents into a legitimate business," Sherman said.

The RTC inspector general's investigative staff numbered about 66 at its largest and now is around 60 as the agency winds down its operations. The RTC is required to cease acting as a separate agency by Dec. 31 and will fold its work into the Federal Deposit Insurance Corp.